An editorial board member explains how concerns over delays in the Bank of Japan’s policy response and developments surrounding July’s yen-buying intervention could affect higher prices and yen depreciation. The analysis also addresses factors including the interest rate differential with the Federal Reserve, normalization bias and political pressure.
Factors other than the latest data are said to influence monetary policy decisions. While discussions have so far focused primarily on developments at the US Federal Reserve, delays in the Bank of Japan’s policy rate hikes have recently been cited as one factor contributing to higher prices and yen depreciation. Bank of Japan Governor Ueda Kazuo (植田 和男) has said, “We will continue to carefully assess the situation so as not to fall behind the curve.”
Factors contributing to delays in monetary policy include the risk that the preliminary data underpinning decisions will be revised, the difficulty of making decisions based on historical data, and excessive optimism about major economic fluctuations, known as a normalization bias.
Political pressure is also said to influence decisions concerning interest rate hikes, with some taking the view that policymakers want to avoid fiscal rigidity. The 2026 Basic Policies include wording calling on the Bank of Japan to conduct appropriate monetary policy to achieve stable price increases.
A view has emerged that Japan and the United States carried out coordinated yen-buying intervention on 31 July, and some also believe that pressure to restrain interest rate hikes by the Bank of Japan temporarily eased. The US Treasury Secretary indicated that intervention could send a signal to the market, while policy could change the trend.
There is a view that Bank of Japan Governor Ueda Kazuo (植田 和男) will take the necessary action, and some have begun to speculate that he will proceed with an additional rate hike at an early date. Against this backdrop, the article organizes the mechanisms behind being behind the curve and avoiding it.